Weekend Stock Market Analysis (5/20/06)

The last week and a half hasn't been pretty as strong selling pressure has occurred in the major averages. The Dow has fallen over 600 points since peaking seven trading days ago near the 11650 level and has broken below its 50 Day EMA (blue line) and upward sloping trend line (brown line) originating from the October 2005 low. At this point one of two things may occur next week in the Dow. If the Dow can hold support at its 38.2% Retracement Level near 11100 then we could see a brief oversold rally develop. However if the Dow is unable to hold support near the 11100 level and continues lower then its next area of support would be around the 10950 area which coincides with its 200 Day EMA (green line) and 50% Retracement Level.

The Nasdaq which topped out five weeks ago near 2375 fell around 200 points during the past seven trading days and is now well below its 40 Weekly EMA (blue line). However despite the Nasdaq getting hammered it still remains above its longer term upward sloping trend line (black line) which originates from the low made in August of 2004. The longer term outlook for the Nasdaq will likely depend on whether it can hold support along its upward sloping trend line or not over the next week or two which appears to be in the 2130-2150 range. If the Nasdaq were to break below its upward sloping term trend line then that could eventually lead to a much larger drop back to its October 2005 low around the 2030 level (point A) at some point.



















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Amateur Investors Mid Week Analysis for May 16th

The major averages have become rather oversold especially the Nasdaq however so far we haven't seen much of a bounce develop. The Dow is still holding support above its 50 Day EMA (blue line) and longer term upward sloping trend line (black line) which is currently around 11200. As I mentioned over the weekend as long as the Dow can hold support at or above its upward sloping trend line then its upward bias will remain intact.

The Nasdaq has been acting the worst of the three major averages and has dropped below its 40 Weekly EMA (green line) near 2238. I still think we could see an oversold bounce develop in the Nasdaq before much longer with it potentially rising back to its 10 Weekly EMA near 2290. However if a bounce doesn't develop and the Nasdaq continues lower instead then look for its next area of support at its longer term upward sloping trend line (black line) near 2150.


One reason for the poor performance in the Nasdaq is tied to the Semiconductors which have been in a downtrend every since peaking in early January near 560. Historically when the Semiconductor Index (SOX) is acting poorly the Nasdaq will usually have problems as well. The SOX has now dropped back to a key area at its 38.2% Retracement Level (calculated from the September 2004 low to the January 2006 high) near 480. If an oversold bounce is going to develop in the Nasdaq the SOX will have to hold support near the 480 level and begin to rally. Meanwhile if the SOX is unable to hold support near the 480 level and continues lower then its next area of support would be at its 50% Retracement Level just below 460.

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Weekly Stock Market Analysis (5/6/06)

The Dow and S&P 500 made new 52 week highs this week as there was some weakness in the price of Crude Oil. As we have seen in the past when the price of Crude Oil has dropped this has allowed for the Dow to rally. The most recent correction in the price of Crude Oil started in mid April which has coincided with a rally in the Dow.

In the near term the price of Crude Oil has a key support level at its 50 Day EMA near the 69 level and the question is will it hold support at this level or not in the days ahead. At this time there are two possible scenarios for the price of Crude Oil. If the price of Crude Oil fails to hold support at its 50 Day EMA then it could eventually drop back to its 200 Day EMA near 64 which would likely allow for the Dow to continue higher much like we saw last February when the Crude Oil broke below its 50 Day EMA. Meanwhile the second scenario would be for the price of Crude Oil to hold support at its 50 Day EMA which would then be followed by a rally eventually leading to a new high much like occurred in July of 2005. In this case the Dow topped out in July of 2005 and then came under some selling pressure.

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